The Business Advisor - Spring 2018

Karen A. Giannelli

(973) 596-4505


Message from the Department:

Dear Colleagues and Friends:

Welcome to our Spring 2018 edition of The Business Advisor. In this edition, we feature two healthcare bankruptcy-related articles by Department Counsel David Crapo, both of which address the interplay between important regulatory laws that strictly govern the practice of healthcare providers, on the one hand, and the sometimes conflicting policies and goals of corporate reorganizations under the United States Bankruptcy Code, on the other. The first article continues to tell the story of Bayou Shores’ ultimately unsuccessful challenge to the termination of its Medicare and Medicaid provider agreements, but adds an interesting twist from a recent decision by the Fifth Circuit Court of Appeals, which may provide future healthcare debtors with an avenue of judicial relief, even absent the prior exhaustion of administrative remedies. At a minimum, there is the potential for a higher court ruling now that there is a widening split among the Circuit Courts of Appeal. David’s second article is reprinted from the New Jersey Law Journal and highlights the prominent role that the Health Insurance Portability and Accountability Act (HIPAA) and the healthcare fraud and abuse laws played in the recent chapter 11 reorganization of 21st Century Oncology.

This edition of The Business Advisor also features two guest articles, which Department Director Dale Barney introduces below. The guest authors are industry professionals with whom the Gibbons Financial Restructuring & Creditors’ Rights Department has had the good fortune to work on several financial restructuring matters. Please also read below about recent and upcoming professional activities of our Department attorneys and noteworthy firm news reflecting the achievements of the Gibbons firm on many levels of workplace and professional accomplishments.

With the long overdue arrival of spring weather, we hope that all of our readers will have the opportunity to enjoy some fun outdoor activities with cherished family and friends. And we continue to look forward to seeing you and enjoying your camaraderie at our upcoming professional activities.

Karen A. Giannelli, Esq.
Chair, FR&CR Department

Introduction to Our Guest Articles:

This edition of The Business Advisor features guest articles by Matthew R. McKinlay, a Partner with the financial advisory firm Advanced CEO in Boise, Idaho, and Ed Wilusz, a Managing Director with Value Management, Inc., a valuation firm in Philadelphia, Pennsylvania.

Matt’s article is entitled “5 Steps to Survive a Cash Crunch,” a topic with which Matt is long familiar. Matt and the Gibbons bankruptcy team first met shortly after James R. Zazzali, Counsel to the firm, was appointed chapter 11 Trustee in the DBSI Inc. bankruptcy cases in the District of Delaware in August 2009. At the time, Matt was the Director of Accounting and Finance for the DBSI companies. The DBSI group was a wide ranging real estate investment sponsor based in the Boise area that specialized in tenant-in-common (or “TIC”) investments that qualified as 1031 exchange properties under section 1031 of the Internal Revenue Code. DBSI sold TICs through both real estate brokers and licensed broker dealers. In 2007, the Securities Exchange Commission determined that TICs were securities that could only be sold by broker dealers. As a result, DBSI terminated the sale of these investments through the real estate channel, a significant portion of DBSI’s revenue stream, leading to the type of cash shortage that Matt discusses in his article. Ultimately, it became apparent that DBSI operated with the characteristics of a Ponzi scheme, with new TIC and other investors’ investments being used to pay returns to earlier investors. When the real estate channel shut down, the scheme became unsustainable, leading to DBSI’s bankruptcy filing in November 2008.

Following the bankruptcy filing, Matt remained with the companies and assisted, first, debtors’ counsel, and then the Trustee and Gibbons with understanding and unwinding DBSI’s finances, which the bankruptcy judge in the case characterized as being of “staggering complexity.” Following confirmation of the Trustee’s plan of liquidation in October 2010, Matt supported both Jim Zazzali, who served as litigation Trustee, and Conrad Myers, who served as liquidation trustee of several trusts established under the plan. He continued to be an invaluable resource as the trusts commenced more than 850 lawsuits seeking recovery of fraudulent transfers and asserting other causes of action against an array of defendants that did business with DBSI. Most recently, Matt testified during a two-week DBSI fraudulent transfer trial in Boise. Matt provides expert witness and advisory services in other litigation matters being handled by Gibbons. He also acts as CFO, CRO and Receiver for a number of troubled businesses across the country.

In his article, Ed tells us “What You Need to Know About Business Valuations” in succinct fashion, setting forth the basics of the income, market, and asset/cost approaches. Insolvency practice requires a clear-eyed view of the value of troubled businesses, and requires expert testimony from time to time. Ed has been retained by Gibbons on behalf of clients requiring this expertise, including, most recently, as the business valuation consultant to United Gilsonite Laboratories in its successful 2014 chapter 11 reorganization.

We are pleased to have Matt and Ed as guest authors this quarter.

Dale E. Barney, Esq.
Director, FR&CR Department


Hope for Healthcare Debtors after Bayou Shores?
See What the Fifth Circuit Says in Family Rehabilitation

By: David N. Crapo

Bayou Shores SNF filed for bankruptcy relief in 2014 to avoid the termination of its Medicare and Medicaid provider agreements by Centers for Medicare and Medicaid Services (“CMS”) and the Florida Agency for Health Care Administration (“AHCA”). CMS and AHCA vigorously opposed Bayou Shore’s motions to enjoin the termination of those agreements, contending that Bayou Shores had not previously exhausted its administrative remedies. Bayou Shores succeeded before the bankruptcy court, obtaining injunctive relief and confirming a plan of reorganization that approved its assumption of those provider agreements. On appeal by the CMS and AHCA, the district court reversed the bankruptcy court’s approval of Bayou Shores’ assumption of its provider agreements. Bayou Shores fared no better on its subsequent appeal to the Eleventh Circuit. That court held that 45 U.S.C. § 405(h) deprived the bankruptcy court of subject matter jurisdiction over Medicare and Medicaid disputes absent the debtor’s prior exhaustion of its administrative remedies. The Supreme Court declined to review the Eleventh Circuit’s ruling, leaving a split of authority on the exhaustion of remedies issue between the Eleventh Circuit opinion in Bayou Shores and the Ninth Circuit’s opinion in In re Town & Country Nursing Home Services, Inc., authorizing bankruptcy court’s to address Medicare disputes even if the healthcare debtor had not previously exhausted all administrative remedies.

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5 Steps to Survive a Cash Crunch
Matthew R. McKinlay, CMA, CTP, Partner, Advanced CFO

As a turnaround professional, I help companies that have fallen behind in their financial obligations to creditors, employees, and other stakeholders. The cash problems a company experiences usually start small but can grow over time to become almost unmanageable. For instance, a company may show the first symptoms of financial distress by stretching payables with a handful of creditors. These problems may grow to affect a greater number of creditors and in larger dollar amounts, which put the company in a deeper hole. The problems can eventually become so great that they reduce the number of options available to a company and jeopardize its very survival.

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What You Need to Know About Business Valuations
By: Ed Wilusz, ASA, CFA, Managing Director of Value Management Inc.

A business valuation is sometimes a necessity in a bankruptcy involving a cramdown, asbestos, or other situation. Presented below is a brief overview of the business valuation process.

Data Gathering
The initial stage of the valuation process requires gathering information that is both company and industry specific. Here, the appraiser requests and receives certain documents (financial and other) from the company. An important part of this stage is meeting with the company to discuss both its history and current operations. The questions asked are those that a potential buyer would ask about daily operations, marketing, competition, administration, financial performance (past and present), company expectations, and industry. After obtaining company information, independent research is undertaken to assemble industry and market specific information. This leads us to the second part of the process, the analysis.

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HIPAA and the Stark Law Take Center Stage in 21st Century Oncology
David N. Crapo
New Jersey Law Journal, February 12, 2018

Health care is tightly controlled by statute, regulation and regulatory guidance. A bankruptcy filing does not exempt the health-care debtor from those controls. Like other debtors, they must operate in accordance with applicable non-bankruptcy law. See 28 U.S.C. §959(b). Moreover, the automatic stay does not prohibit a governmental entity from enforcing health-care laws against a debtor. See, e.g., 11 U.S.C. §§362(b)(4) (general police powers exception) and 362(b)(28) (exclusion from federal health programs exception).


Natasha Songonuga, a Director in the FR&CR Department, was elected a Fellow of the American Bar Foundation. The Fellows is a global honorary society of attorneys, judges, law faculty, and legal scholars whose public and private careers have demonstrated outstanding dedication to the highest principles of the legal profession and to the welfare of their communities. The Fellows support the research of the American Bar Foundation through their annual contributions and sponsor seminars and events of direct relevance to the legal profession.

Six Gibbons FR&CR Attorneys Individually Ranked in 2018 Chambers

The 2018 edition of the Chambers USA Guide to America’s Leading Lawyers for Business features the Gibbons FR&CR Department and six of its Directors and Counsel:

Dale E. Barney
Mark B. Conlan
David N. Crapo
Karen A. Giannelli
Natasha Songonuga
Frank J. Vecchione

Sources were quoted as saying of the firm’s bankruptcy practice: “Excellent lawyers with an in-depth knowledge of the law” and that “they are compassionate, realistic and communicate very effectively.” Another client added: “They’re a full-service firm who can handle any kind of bankruptcy matter; the depth of experience is excellent.”

New Jersey Super Lawyers and Rising Stars Highlights Five Gibbons Financial Restructuring & Creditors’ Rights Attorneys

The Gibbons FR&CR Directors and Counsel listed in the 2018 issue of New Jersey Super Lawyers are:

Dale E. Barney
Mark B. Conlan
David N. Crapo
Karen A. Giannelli
Frank J. Vecchione


Upcoming Events

Karen A. Giannelli, Chair of the FR&CR Department, serves as a member of the Advisory Board for “Bankruptcy 2018 Views from the Bench,” co-sponsored by the American Bankruptcy Institute and Georgetown University Law Continuing Legal Education Division, to be held at Georgetown University Law Center, Washington, D.C. on September 21, 2018.

David N. Crapo will participate in a panel on “Healthcare Issues in Bankruptcy” at the American Bankruptcy Institute Mid-Atlantic Workshop on August 2-4, 2018 in Hershey, Pennsylvania.

Recent Events

Karen A. Giannelli, Chair of the FR&CR Department, participated on a panel entitled “LLCs In (and Out of) Bankruptcy” at the 20th Annual Hon. William H. Gindin Bankruptcy Bench Bar Conference on March 23, 2018 in East Brunswick, NJ.

Natasha Songonuga, a Director in the FR&CR Department, participated in a “Game Changer Panel” sponsored by the Commerce and Industry Association of New Jersey (CIANJ), on April 24, 2018. The panel discussed the revised 2017-18 ASTM Environmental Valuation and Disclosure Standards and how they are changing how companies value and report environmental matters. Panelists also provided updates on these high-impact changes and presented case studies that showed how the standards are playing out in corporate reporting, M&A transactions, and bankruptcy filings.

David N. Crapo, Counsel in the FR&CR Department, has been selected as the editor of the Health Law Committee of the American Bankruptcy Institute newsletter.

On April 10, 2018, Mr. Crapo presented a webinar for Lawline entitled “A Guide to Shepherding a Healthcare Provider Through Bankruptcy.”


Gibbons Recognized as a Leading Firm by Chambers USA
(May 4, 2018) 

Gibbons Named One of the NJBIZ Best Places to Work in New Jersey for the 13th Consecutive Year (May 2, 2018)

Gibbons Named One of the 2018 Best Workplaces in Consulting & Professional Services (April 27, 2018)

New Jersey Super Lawyers and Rising Stars Ranks 63 Gibbons Attorneys (March 19, 2018)

 Gibbons is headquartered at One Gateway Center, Newark, NJ 07102; (973) 596-4500

This communication provides general information and is not intended to provide legal advice.
Should you require legal advice, you should seek the assistance of counsel.

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Prior results do not guarantee a similar outcome.